Legislative & Regulatory | Tax

Maryland's final fiscal 2025 budget: Key revenue changes

The 2025 Maryland legislative session ended on April 7, and there still is a lot to digest.  Here is a quick summary of the tax changes that were enacted.

The MACPA is continuing its analysis, including holding discussions with the Comptroller’s Office as they prepare additional guidance.  Please stay tuned for details as they become available.

Sales Tax on Data and IT Services

A new 3% sales tax on information technology and data services, based on NAICS codes, has been approved.

  • Estimated revenue: Approximately $500 million annually
  • Special provisions: Purchases for multiple-points-of-use (apportionment) and related party transactions
  • Effective date: July 1, 2025 (for transactions on / after this date)
  • Next steps: Comptroller guidance is expected by early June 2025.

What you can do
We need your examples and questions related to the purchase and sale of data and IT services, similar to the CPA community’s input that informed Tax Tip No. 29 on digital products. The State Tax Committee will use this list in discussions with the Comptroller’s Office as the official detailed guidance is being developed.  Forward your ideas to Marybeth@macpa.org.

Personal income tax changes

The following changes apply to tax years beginning after Dec. 31, 2024:

  • Capital gains surcharge: A 2% surcharge for filers earning over $350,000. Estimated revenue: $370 million
  • Higher PIT rates for top earners: 6.25% on income above $500,000 / 6.5% on income above $1 million
  • Itemized deduction caps: Apply to filers earning over $200,000. A “phase-out” factor of 7.5% of the excess over the $200,000 federal AGI is applied to calculate the allowed deductions maximum amount. Example: AGI of $500,000 is $300,000 excess over the $200,000, times 7.5% is $22,500. Say that $50,000 is the tentative claimable itemized deductions: $50,000 minus $22,500 phase-out = $27,500 maximum itemized deductions allowed.

Fees and excise tax increases

The following tax increases become effective on July 1, 2025:

  • Vehicle excise tax: From 6% to 6.5%
  • Rental vehicle tax: 3.5%
  • Cannabis sales tax: From 9% to 12%
  • Sports betting tax: From 15% to 20%
  • New tire fee: $5 per tire
  • Vehicle emissions inspection fee: From $14 to $30
  • Extension of 6% sales tax to vending machine sales

Pass-through entity (PTE) tax amendment

This was a last-minute “oops” in the Conference Committee discussions that will be amended in the very next session.

  • The amendment provides that a PTE that elects to pay tax on behalf of all of its members calculates resident member tax liability based on the PTE’s total income (in-state and out-of-state) and non-resident member tax liability based on the PTE’s Maryland apportioned income.
  • As worded, the amendment causes an issue for S-corporations, as it is likely viewed as a special allocation, a second class of stock, and thus endangers the federal S- election.
  • Implementation date: July 1, 2026 (thus allowing time to fix this while still getting the idea into the law as a placeholder)

Note: Technical corrections are expected and planned in the next legislative session — either an expected fall 2025 special session or the January 2026 session.

Sales tax refund interest rate amendment

This amends the annual interest rate to the then-current prime rate, to be paid on sales and use tax refunds resulting from a final decision under the Potomac Edison case (involves the manufacturing equipment sales tax exemption).

Not enacted

  • Combined reporting and corporate tax rate decrease were excluded.
  • A proposed repeal of the inheritance tax was rejected. The inheritance tax stays in effect (for the few people who do not fall under the many current exemptions, and with the full credit against the estate tax for any inheritance tax that is owed).
  • A proposed reduction of the estate tax exemption from $5 million to $2 million was rejected. The estate tax exemption remains at $5 million per person

Reference documents